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Midwest Ice Cream Company


Facility #1 : Midwest Ice Cream Company
Basic Facility Info
Facility ID

100000135267

Deregistered (Yes/No)

No

Facility Name

Midwest Ice Cream Company

Street Address Line 1

630 Meadow Street

City

Belvidere

State

IL

Zip Code

61008

Zip Code Extension

3328

County

Boone County

113th Congressional District

IL16: Illinois 16

Owner or Operator Name

Midwest Ice Cream Company

Parent Company

Dean Midwest,LLC

Latitude

42.261667

Longitude

-088.836111

Number of RMP Submissions


Map this facility

5
link to map

Most Recent Submission Info


RMP ID

1000041613

Submission Type

revised submission for facility

Submission Date

06/04/2014

Reason For Submission

5-year update (40 CFR 68.190(b)(1))

Process Toxic Amount Total (lbs)


Process Flammable Amount Total (lbs)

40,400
0

Process Amount Total (lbs)

40,400

Number of Potential Offsite Consequence Processes

Potential Offsite Consequence Toxic Amount Total (lbs)

40,400

Potential Offsite Consequence Flammable Amount Total (lbs)

Potential Offsite Consequence Amount Total (lbs)

40,400

All Process NAICS

31152

Exec Summary Submission Date

06/04/2014

Executive Summary

(Facility #1 : Midwest Ice Cream Company, executive summary: all)

Executive Summary
FACILITY AND REGULATED SUBSTANCE HANDLED
Midwest Ice Cream Company formerly known as Dean Foods Company/Belvidere, processes Ice Cream
products. The facility utilizes anhydrous ammonia as a refrigerant to maintain proper temperatures for
milk,cream and ice cream within the facility.Anhydrous ammonia is an effective refrigerant that is utilized by
numerous food processing facilities. Ammonia is normally a gas at ambient temperature however, here it is
handled as a gas liquified under pressure. The refigeration system consists of a Control-pressure receiver,
evaporators, Condensers,vessels, compressors,piping and valves.
ACCIDENTAL RELEASE PREVENTION AND EMERGENCY RESPONSE POLICIES
Midwest Ice Cream Company is committed to promotimg Safety for the facility, employees and the
surrounding community.The facility does comply with OSHA's (PSM) Process Safety Management standard
29CFR1910.119, and EPA's (RMP)Risk Management Plan 40CFR part 68. The purpose of these programs is
to ennsure the refrigeration system is operated safely and consistently to prevent releases from the system.
In addition, these programs serve to develop procedures to minimize releases in the event they do occur
and to outline appropriate emergency responses to take in the event of a release.
ACCIDENTAL RELEASE PREVENTION PROGRAM AND CHEMICAL-SPECIFIC PREVENTION STEPS
Midwest Ice Cream Company remains committed to safety for their employees and the community. We have
developed and established numerous programs to prevent accidental releases of Ammonia and to remain in
compliance with the PSM Standard. These programs include: Employee participation, Incident Investigation,
Compliance Audits, Annual Training for employees,Operating Procedures, Process Hazard Analysis(PHA's),
Process Safety Information, Pre-startup Review, Management of Change, Mechanical Integrity, Contractor
Safety and Hot works permits.
EMERGENCY RESPONSE INFORMATION
The facility maintains an Emergency Response Plan that was prepare
d to improve the responsiveness to an emergency situation or Ammonia incident and to increase the
reliability of actions taken during an incident. As an intricate portion of the PSM Program, the plan includes:
Adequate first aid and medical treatment, evacuations, instructions for notification to local,state and federal
agencies and the public.
In the event of an emergency involving the Ammonia system, it is the policy of the facility to request
assistance as necessary from local emergency services, by dialing 911.This action will notify the Belvidere
Police Department, the Belvidere Fire Department and the Local Emergency Planning Commission (LEPC).
Midwest Ice Cream Company is included in the local emergency response planning.
FIVE YEAR ACCIDENT HISTORY
Midwest Ice Cream Company has an excellent record of preventing accidental releases over the past five
years.Due to the stringent release prevention policies, there have been no accidental releases during this
period.
PLANNED CHANGES TO IMPROVE SAFETY
Several Developments and findings have resulted from implementation of the various elements of our
accidental release prevention program. They include, additional Ammonia sensors in the production area,
employee training, expansion of the facility HAZMAT team to include all shifts and evacution drills. We will
continue to operate and maintain the system in accordance with IIAR Guidance and will continue to

implement and follow OSHA PSM program in conjunction with the Risk Management Plan.
Submission - Other Facility Info
Number of Full Time Employees

120

Owner or Operator Name

Midwest Ice Cream Company

Owner or Operator Address Line 1

630 Meadow Street

Owner or Operator City

Belvidere

Owner or Operator State

IL

Owner or Operator Zip

61008

Owner or Operator Zip Extension

3398

Parent Dun and Bradstreet Number

Second Parent Dun and Bradstreet Number

Number of Full Time Employees

120

Number of FTE CBI Flag

No

Covered by OSHA PSM Standard

Yes

Covered by EPCRA Section 302

Yes

Covered by CAA Title V

No

Last Safety Inspection Date

10/31/2013

Last Safety Inspection By

FM Global

OSHA Star or Merit Ranking

No

LEPC Name

Boone County LEPC

Submission - Contact Info

(Facility #1 : Midwest Ice Cream Company, RMP submission #1 : 2014-06-04)

Owner or Operator Phone

8155442105

Facility Dun and Bradstreet Number

831891721

RMP Contact

Dale Foltz

RMP Contact Title

Plant Manager

RMP Contact Email

dale_foltz@deanfoods.com

Submission - Additional Info


RMP Complete Flag

Yes

Predictive Filing

No

No RMP Accidents Last 5 Years

No

Complete Check Date

06/04/2014

Postmark Date

06/04/2014

Anniversary Date

06/04/2019

Confidential Business Information

No

Submission - Lat/Long Info


Latitude

42.261667

Longitude

-088.836111

Valid Lat/Long

Yes

Lat/Long Method

Interpolation - Map

Lat/Long Location Type

Center of Facility

FRS Latitude

42.2608

FRS Longitude

-88.8361

FRS Lat/Long Description

PLANT ENTRANCE (GENERAL)

FRS Lat/Long Method

ADDRESS MATCHING-HOUSE NUMBER

Submission - Counts and


Totals

(Facility #1 : Midwest Ice Cream Company, RMP submission #1 : 2014-0604)

Number of RMP Accidents

RMP Accident Flammable Total (lbs)

RMP Accident Toxic Total (lbs)

RMP Accident Amount Total (lbs)

Number of RMP Accidents

Number of Processes

Number of Process Chemicals

Number of Toxic Worst-case Scenarios

Number of Toxic Alternate Case Scenarios

Number of Flammable Worst-case Scenarios

Number of Flammable Alternate Case Scenarios

RMP Accident Flammable Total (lbs)

RMP Accident Toxic Total (lbs)

RMP Accident Amount Total (lbs)

Total RMP Accident Deaths

Total RMP Accident Injuries

Total RMP Accident Evacuated/Sheltering In Place

Total RMP Accident Property Damage

Processes

$0

(Facility #1 : Midwest Ice Cream Company, RMP submission #1 : 2014-06-04, process #1 : Ammonia
System)

Process Description

Ammonia System

Program Level

Confidential Business Information

No

Toxic Amount Total (lbs)

40,400

Flammable Amount Total (lbs)

Process Amount Total (lbs)

40,400

Number of Process Chemicals

Number of Toxic Worst-Case Scenarios

Number of Toxic Alternate Scenarios

Number of Flammable Worst-Case Scenarios

Number of Flammable Alternate Scenarios

Process Chemicals
Process Chemical ID

Ammonia (anhydrous)

CAS number

007664417

Chemical Type

Toxic

Process Chemical Amount (lbs)


Confidential Business Information

Process
Chemicals

40,400
No

(Facility #1 : Midwest Ice Cream Company, RMP submission #1 : 2014-06-04, process #1 :


Ammonia System, process chemical #2)

Process Chemical ID

Public OCA Chemical

CAS number

000000000

Process Chemical Amount (lbs)


Confidential Business Information

0
No

Worst-Case Toxic Scenarios


Percent Weight (Within Mixture)

100

Physical State

Gas liquified by pressure

Model Used

EPA's RMP*Comp(TM)

Release Duration (minutes)

10

Wind Speed (meters/sec)

1.5

Atmospheric Stability Class

Topography

Urban

Passive Mitigation - Dikes

No

Passive Mitigation - Enclosures

Yes

Passive Mitigation - Berms

No

Passive Mitigation - Drains

Yes

Passive Mitigation - Sumps

Yes

Confidential Business Information

No

Alternate Case Toxic


Scenarios

(Facility #1 : Midwest Ice Cream Company, RMP submission #1 : 2014-06-04, process


#1 : Ammonia System, process chemical #2, alternate toxic scenario #1)

Percent Weight (Within Mixture)

100

Physical State

Gas

Model Used

EPA's RMP Guidance for Ammonia Refrigeration Reference Tables or


Equations

Wind Speed

Atmospheric Stability Class

Topography

Urban

Passive Mitigation - Dikes

No

Passive Mitigation - Enclosures

Yes

Passive Mitigation - Berms

No

Passive Mitigation - Drains

Yes

Passive Mitigation - Sumps

Yes

Active Mitigation - Sprinklers

No

Active Mitigation - Deluge Systems

No

Active Mitigation - Water Curtain

No

Active Mitigation - Neutralization

No

Active Mitigation - Excess Flow


Valves

No

Active Mitigation - Flares

No

Active Mitigation - Scrubbers

No

Active Mitigation - Emergency


Shutdown

Yes

Confidential Business Information

No

Process
NAICS
NAICS Code

(Facility #1 : Midwest Ice Cream Company, RMP submission #1 : 2014-06-04, process #1 :


Ammonia System, process NAICS code #1 : 31152)

31152: Ice Cream and Frozen Dessert Manufacturing

Prevention Program 3
Safety Info Review Date

12/02/2011

PHA Update Date

05/22/2013

PHA Technique - What If

No

PHA Technique - Checklist

No

PHA Technique - What If/Checklist

Yes

PHA Technique - HAZOP

No

PHA Technique - FMEA

Yes

PHA Technique - FTA

No

PHA Change Completion Date

06/13/2013

Hazard Identified - Toxic Release

Yes

Hazard Identified - Fire

No

Hazard Identified - Explosion

Yes

Hazard Identified - Runaway Reaction

No

Hazard Identified - Polymerization

No

Hazard Identified - Overpressure

Yes

Hazard Identified - Corrosion

Yes

Hazard Identified - Overfilling

Yes

Hazard Identified - Contamination

No

Hazard Identified - Equipment Failure

Yes

Hazard Identified - Cooling Loss

Yes

Hazard Identified - Earthquake

Yes

Hazard Identified - Flood

Yes

Hazard Identified - Tornado

Yes

Hazard Identified - Hurricane

No

Process Controls - Vents

Yes

Process Controls - Relief Valves

Yes

Process Controls - Check Valves

Yes

Process Controls - Scrubbers

No

Process Controls - Flares

No

Process Controls - Manual Shutoffs

Yes

Process Controls - Auto Shutoffs

Yes

Process Controls - Interlocks

Yes

Process Controls - Alarms

Yes

Process Controls - Keyed Bypass

No

Process Controls - Emergency Air

No

Process Controls - Emergency Power

No

Process Controls - Backup Pump

No

Process Controls - Grounding

Yes

Process Controls - Inhibitor Addition

No

Process Controls - Rupture Disks

Yes

Process Controls - Excess Flow Devices

No

Process Controls - Quench System

No

Process Controls - Purge System

Yes

Process Controls - None

No

Mitigation Systems - Sprinklers

Yes

Mitigation Systems - Dikes

No

Mitigation Systems - Fire Walls

Yes

Mitigation Systems - Blast Walls

No

Mitigation Systems - Deluge Systems

No

Mitigation Systems - Water Curtains

No

Mitigation Systems - Enclosure

Yes

Mitigation Systems - Neutralization

No

Mitigation Systems - None

No

Monitoring Systems - Process Area

Yes

Monitoring Systems - Perimeter

No

Monitoring Systems - None

No

Changes Since PHA - Reduced Inventory

No

Changes Since PHA - Increased Inventory

No

Changes Since PHA - Process Parameters

No

Changes Since PHA - Process Controls

No

Changes Since PHA - Process Detection

No

Changes Since PHA - Perimeter Monitoring

No

Changes Since PHA - Mitigation Systems

No

Changes Since PHA - None Recommended

No

Changes Since PHA - None

Yes

Procedure Review Date

06/13/2013

Training Review Date

10/17/2013

Type of Training - Classroom

Yes

Type of Training - On the Job

Yes

Competency Testing - Written Tests

Yes

Competency Testing - Oral Tests

Yes

Competency Testing - Demonstration

Yes

Competency Testing - Observation

Yes

Maintenance Review Date

04/28/2014

Maintenance Inspection Date

04/28/2014

Equipment Tested

Evaporators

Management of Change Most Recent Date

09/20/2012

Management of Change Review Date

09/20/2012

Pre-startup Review Date

08/16/2012

Compliance Audit Date

11/01/2011

Compliance Audit Change Completion Date

12/01/2011

Participation Plan Review Date

10/17/2013

Hot Work Review Date

10/07/2013

Contractor Safety Review Date

07/29/2013

Contractor Safety Eval. Date

03/11/2013

Confidential Business Information

No

Prevention Program 3
Chemicals

(Facility #1 : Midwest Ice Cream Company, RMP submission #1 : 2014-06-04, process


#1 : Ammonia System, process NAICS code #1 : 31152, prev. program 3 #1, prev.
program 3 chemical: all)

Process Chemical Record ID


1000062186

Prevention Program 3 Text


Prevention Program Description
Anhydrous Ammonia Refrigeration Preventive Maintenance

Emergency Response Plan Info


Facility In Community Plan

Yes

Facility Own Response Plan

Yes

Specific Facility Response Plan

Yes

Inform. Procedures in Response Plan

Yes

Emergency Care in Response Plan

Yes

Plan Review Date

01/08/2014

Response Training Date

04/30/2013

Local Response Agency

Belvidere Fire Department

Local Response Agency Phone

8155442740

Subject To - OSHA EAP

Yes

Subject To - OSHA HAZWOPER

Yes

Subject To - CWA

Yes

Subject To - RCRA

No

Subject To - OPA

No

Subject To - State EPCRA

Yes

Search Criteria Used


RMP Facility ID

100000135267

Extended

Level of Detail

Type of Report Output

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Text (HTML)

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*END OF REPORT*
This search was done on December 9, 2015. It was compiled from government data last released on
December 31, 2014. The data were obtained from the U.S. EPA's Risk Management System database
(RMP).

Midwest Ice Cream


The first major reason for the favorable operating income variance of $71,700 is that there have been higher sales
volume than that forecasted. Essentially, higher sales volume has been responsible for the favorable operating
income variance. The actual net sales are $9,657,300, whereas, the budgeted sales volume was $9,645,300. On the
other hand unfavorable variance due to operations have actually decreased the favorable operating income variance
by $46,000. Specifically, the major reason for the favorable operating income variance is the higher actual sales than
planned sales of product D and product E. The planned product sales of product D was 20,000 units instead 36,000
units were sold and the planned sales of product E was 8,000 units, instead 28,000 units were sold. The basis reason
for the favorable profit variance was that Midwest's actual sales volume was higher than forecast.
And also the second question: how an analysis of the profit variance could highlight those areas needing
management attention..
The analysis of profit variance can show can highlight those areas that need management attention. Particularly in
case of Midwest is that the variance due to operations was unfavorable. This means that areas where the costs have
been higher than the budgeted costs require corrective measures. If we consider the manufacturing cost, the variable
costs show that milk price variance and sugar price variance have been responsible for unfavorable variable costs.
Similarly, higher fixed costs of repairs, electricity and water, and spoilage have been responsible for higher actual
fixed costs. From the perspective of sales, the actual sales of Product A, B, C, and F have been lower than planned
sales. Each of these areas needs management attention. The management needs to address those areas where the
costs have been high and find out reason why the sales of four products have been lower than the planned sales.
The management will have to take corrective action.

EXECUTIVE SUMMARY It is recommended that Jim Peterson use the following outline
for the presentation to the board of directors at Midwest Ice Cream Company. Outline
for Presentation Introduction Identify the problem Analyse Figure 1 and Illustrations
1 - 3 Commend the areas that did well Discuss the corrective actions to consider
Make recommendations Conclude the presentation The following case study provides
Jim Peterson with all the necessary information to make a
1964 Presidential Election
The 1964 Presidential election matched two very different candidates during one of the most critical times in American history. John F.
Kennedy, the very popular president, had been assassinated ...

non-technical presentation to the board of directors. INTRODUCTION Budgeting is a


vital element of the management planning and control process. Budgeting is the
process that translates corporate intentions into specific tasks, and identifies the
resources needed by each manager to carry them out. In the process, budgeting
enhances communication and co-ordination of different administrative units, facilitates
decision-making, and provides a framework for monitoring and for performance
evaluation. All managers are responsible for preparing a budget. Since specific
departments play
Beer
Beer Historically hops, yeast, malted barley, and water have all played the greatest and most important role in society. For almost 8000 years
these ingredients have been mixed ...

important roles in improving various components of the balance sheet and the income
statement, it is critical that they prepare their budgets in a responsible way. Once
budgets are in place it is necessary to analyse the difference between the actual and
budgeted costs (variance). A variance analysis involves the decomposition of the
variance into the individual factors that caused the variance. Managers need to be able
to understand how to break down and analysis the variances ;this helps
Prohibition
Historically hops, yeast, malted barley, and water have all played the greatest and most important role in society. For almost 8000 years
these ingredients have ...

them determine the proper corrective action. PROBLEM The Midwest Ice Cream
Company is doing many things wrong, and the mistakes they are making are being
covered up by a poorly planned budget. ANALYSIS The overall variance at Midwest Ice
Cream is $71,700F . This is considered a good variance because it means they made
more money than their original budgeted figure. However, the breakdown of this
variance shows quite a different picture, it seems that Midwest under-budgeted their
Memoirs of Sol Funaroff
align="center">MY BROTHER, SOL FUNAROFF By Urie Funaroff Sol Funaroff was like a drowning man who lifts a guiding light for others
while he sinks. In the midst of his ...

sales forecast by 248,037 gallons of ice cream or $117,700F. This figure was slightly
offset by the $(58,000)U operating variance which brings the total number to $71,700F.
When looking at variances it is possible to break them down into their specific areas. In
the analysis of the Midwest Ice Cream Company the variances can be broken into three
broad areas Sales, Operations and Sales Price/Operations. The following variance
analysis lets managers understand why the variances occurred. Sales - Refer

Walgreens A Strategic Analysis


Table of Contents TABLE OF CONTENTS 1 TABLE OF FIGURES 2 THE RETAIL DRUGSTORE INDUSTRY 3 BUSINESS ACTIVITIES 7
INDUSTRY OVERVIEW 7 BACKGROUND 8 MODERN DRUGSTORES 8 CURRENT ORGANIZATION ...

to Appendix A The overall sales variance is $117,700 this number on its own can be
misleading that is why it is necessary to break it down into the specific areas. The sales
variance can be dissected into three areas: industry volume, market share and sales
mix. Industry Volume $167,619F Market Share $(55,259)U Sales Mix $5,339F Total
$117,700F Now that the specific variances have been identified it is easy to understand
what corrective action needs to
Walgreens - A Strategic Analysis
Table of Contents TABLE OF CONTENTS 1 TABLE OF FIGURES 2 THE RETAIL DRUGSTORE INDUSTRY 3 BUSINESS ACTIVITIES 7
INDUSTRY OVERVIEW 7 BACKGROUND 8 MODERN DRUGSTORES 8 CURRENT ORGANIZATION ...

be taken. For example the market share is $(55,259)U, this means that the overall
market share dropped from 50% to 49%. Operation Expenses - Refer to Appendix D
The operation consists of expenses such as manufacturing, delivery, advertising, selling
and administrative. The greatest variance within operations is the unfavourable
manufacturing expense of $(99,000)U. This manufacturing variance can be broken into
fixed and variable costs. Variable Cost Variance $(59,100) Fixed Cost Variance
$(39,900) Total $(99,000) The $(59,000) can
Walgreens-A Strategic Analysis
Table of Contents TABLE OF CONTENTS 1 TABLE OF FIGURES 2 THE RETAIL DRUGSTORE INDUSTRY 3 BUSINESS ACTIVITIES 7
INDUSTRY OVERVIEW 7 BACKGROUND 8 MODERN DRUGSTORES 8 CURRENT ORGANIZATION ...

be broken down into $(80,700)U due to price increase and $21,600F due favourable
usage variance. The $(80,700)U price increase is most likely due to an unforeseen
environmental change which Midwest probably has little control over. The detailed
manufacturing variance analysis allows management the opportunity to make the
proper corrective actions for 1974's budget. Operating - Refer to Appendix C The
operating variance can be found by subtracting the flexible budget income from the
actual income. In the case of
Organizational Skills
ffWalgreens - A Strategic Analysis Table of Contents TABLE OF CONTENTS 1 TABLE OF FIGURES 2 THE RETAIL DRUGSTORE
INDUSTRY 3 BUSINESS ACTIVITIES 7 INDUSTRY OVERVIEW 7 BACKGROUND 8 ...

Midwest the operating variance is $(46,000)U, this unfavourable variance is mainly due
to a decrease in sales. The operating variance can be broken down into Gross Margin
and

Midwest a
Case 24-4 Midwest Ice Cream Company (A)
QUESTIONS
Explain in as much detail as possible where all the numbers for Steps 1-4 would come from. (You will need to use
your imagination; the case does not describe all details of the profit planning process.)
We can get the numbers from the companys records and its external environment.
We can use the following from the companys records:
Managements short term and long term plans;
Accounting reports such as financial statements;
Source documents such as official receipts, purchase and sales invoices and vouchers;
Communications/directives from management that affect in one way or another the companys budgeting process;
and
Previous budgets and comparisons with actual performance.
The following factors from the external environment can be used:
Trends in the market where the company operates;
Existing economic conditions and issues;
Competition; and
Environmental factors, such as weather conditions.
Step 1: Establish standards for selling price, variable expenses, and marginal contribution per gallon.
The companys accounting personnel can use current prices and records for determining material costs. These
can be traced trough source documents such as official receipts and invoices.
In the problem, advertising expense has been considered as part of the variable cost because management
decided to have an allowance of 6 cents per gallon for this expense for the actual number of gallons sold.
After the unit variable cost has been developed, this amount is subtracted from the selling price to arrive at
marginal contribution per unit.
Step 2: Sales forecasts
In coming up with a sales projection, consideration should be given to the number of days in a given period, as
well as to the number of Fridays and Mondays, as these are two of the heaviest days and will make a difference in
the sales forecast.

SHUMAN AUTOMOBILES, INC.


Institute of Management
College of Social Sciences

SHUMAN AUTOMOBILES, INC.


RESPONSIBILITY ACCOUNTING
TRANSFER PRICING
Submitted By:
Ame, Donna Mae B.
Dela Pena, Melissa S.
Dulad, Jhune E.
Submitted to:
Sir Jay Stephen Siy
12 October 2006
CASE 22 ? 1 : SHUMAN AUTOMOBILES, INC.
Responsibility Accounting & Transfer Pricing
Facts of the Case:
1. Clark Shuman, owner and general manager, plans to retire and relinquished his
control over the company
2. Business has been doing good with an emphasis of selling new cars as the
principal business of the dealership
3. He created three independent departments, namely new car sales, used car
sales, and service department.
4. Salary is dependent on each departments gross profit
5. Upon the take over of the managerial positions, Janet Moyer of the new car sales
had a first challenge of making a sale through a costumer who wanted to trade his old
car with a new car.
6. Moyer had to decide the amount she would offer the costumer for the trade in
value of the old car.
7. The new car model has been in stock for some time and the model wasnt
selling.
8. The list price of the new car is $14400.

List Price of New Car: $14400


Cost of the New Car: 12240
9. Paul Fiedler, the used car manager, estimated the reconditioning work to cost
$840, and the car could be retailed at $7100 or wholesaled at $6100.
10. Blue Book price range of buying this model of car in good condition is from
$5500 $5800. Fiedler estimated he could sell the trade-in car at an auction as is at
$5000.
11. If Moyer would sell the car without trade in, she will have to deduct about 8%
from the list price, which makes the sales to $13,248.
12. Nate Bianci is charging the used car department for $2,000. Total cost of repair
amounted to 1,594 and based on Blue book, charges for this kind of repair ranges from
1,960 ? 2,040 and she has always aimed for the middle of the BB range.
Questions:
1. Suppose the new-car deal is consummated, with the repaired used car being
retailed for $7,100, the repairs costing Shuman $1,594. Assume that all sales personnel
are on salary (no commissions) and that general overhead costs are fixed. What is the
dealership incremental gross profit on the total transaction (i.e., new and repaired-used
cars sold)?
ANSWER:
SHUMAN AUTOMOBILES, INC
Income Statement
Sales of new cars $14,400
Cost of new car sales $12,240
New car gross profit $2,160
Sales of used car $7,100
Cost of used car $6,500
Service work on reconditioning $1,594
Used car gross profit $(994)
Dealership gross profit $1,166

2. Assume each department (new, used, service) is treated as a profit center, as


described in the case. Also assume in a c that it is known with certainty beforehand
that the repairs will cost $1,594.
a. In your opinion, at what value should this trade-in (unrepaired) be transferred
from the new-car department to the used-car department? Why?
Wholesale after reconditioning 7,100
Market price of repairs -2,000
Trade-in value of unrepaired 5,100
Why 5,100 as the transfer price?
? Fiedlers feedback (used car manager) after examining the car together with
Moyer (new car manager) and the customer.
? Car would require reconditioning work costing about $840.
? After which, the car would retail for about $7100, on wholesale basis it would be
about $6100.
? Blue Book price range in buying used car in good condition is from $5500
$5800.
? Fiedler estimated that he could get about $5000 for the car as is at the auction.
? Moyers considerations:
? The new car had been in stock for some time and the model was not selling very
well.
? Try to persuade the used-car manager to take over the car and accept the usedcar managers appraisal price
? She herself could sell the car through wholesale channels or at the auction.
? Balance the need to satisfy the customer (who had an inflated view of the worth
of his old car) and move the new cars out on inventory.
? No trade-in, she would have to deduct 8% from the list price.
? Nate Biancis charges in repairing the old car (deal has been consummated)
Transfer Price = Outlay Costs + Opportunity Costs
= (Cost of repairs + Cost of axle replacement)+ OpC

= 1594 + 406
Transfer Price = 2000
? Fiedler failed to see the broken axle which was not included on his estimation
? Moyer sold the car anyway, out of bounds of Fiedlers estimate and the Blue
Book.
? These two managers should absorb the cost they failed to consider and the
service center charges should not be compromised because of these failures.
? So as per the facts of the case, Bianci is charging the used car department 2,000
for the repairs of the old car and we see it deemed fair enough because it was based on
the blue book.
Wholesale after reconditioning 7,100
Market price of repairs -2,000
Trade-in value of unrepaired 5,100
b. In your opinion, how much should the service department be able to charge the
used-car department for the repairs on this trade-in car? Why?
Transfer Price = Outlay Costs + Opportunity Costs
= (Cost of repairs + Cost of axle replacement) + OpC
= 1594 + 406
Transfer Price = 2000
c. Given your responses to a and b, what will be each departments incremental
gross profit on this deal?
Wholesale after reconditioning 7,100
Market price of repairs -2,000
Trade-in value of unrepaired 5,100
NEW USED SERVICE
List price of new car 14,400
Allowance for the used car -6,500

Cost of new car -12,240


Trade-in value of unrepaired 5,100 -5,100
Revenue from sale of used car 7,100
Transfer price of repairs -2,000 2,000
Cost to repair used car 0 -1,594
Net contribution to dealership 760 0 406
Shown above are the net contribution of each department regarding the sale that
was made. The new car department have absorbed some of the cost since it accepted
the deal outside the bounds of the blue book of the used car department and likewise,
used car department was left with no profit since it has an under estimation of the cost
of repairs.
3. Is there a strategy in this instance that would give the dealership more profit
than the one assumed above (i.e., repairing and retailing this trade-in used car)?
Explain. In answering this question, assume the service department operates at
capacity.
AUCTION DISCOUNT REPAIR
List price of new car 14,000 14,400 14,400
Price discount of NC 0 -1,152 0
Allowance for the UC -6,500 0 -6,500
Cost of new car -12,240 -12,240 -12,240
Sell the UC as is 5,000 0 0
Revenue-sale of UC 0 0 7,100
Cost to repair UC 0 0 -1,594
Lost contribution in service 0 0 -406
Net contribution to dealership 660 1008 760
It may be tempting to say that Shuman automobiles could have just opted to sell
the car at a discount price since there is more profit in this strategy, but as mentioned
in the case, the model of the new car was barely selling and it has been on inventory for
a long time. It make take some time to dispose it, if it were not put on a trade-in deal.

4. Do you feel the three-profit-center approach is appropriate for Shuman? If so,


explain why, including an explanation of how this is better than other specific
alternatives. If not, propose a better alternative and explain why it is better than three
profit centers and any other alternatives you have considered.
? Upon considerations, the group views that the three-profit center must be opted
rather than the centralized form of management. Listed below are some advantages
and disadvantages of decentralization:
Advantages:
? Provides managers with the freedom to make local decisions.
? It makes the individual departments creative in coming up with ways to make
profit, especially with increased motivation due to the fact that Mr. Shuman placed their
remuneration based on departmental gross profit.
? Provides incentives to department managers and individuals to optimize their
individual performances.
? Each department will become more conservative with their cost management.
? Supports management and individual specialization based on comparative
advantage.
? Provides top management with more time to make policy decisions and engage
in strategic planning.
? Better decisions can be made at the local level.
Disadvantage:
? Each department will be prone to be focused on making profit for their own
department, without regard for the other departments, to the point that their decisions
might not be in congruence with the over-all attainment of organizational goal.
? Decentralization has some credibility at the division level, but a RA organization
creates conflicts between segments, e.g., transfer pricing problems, purchasing
department buying on the basis of price, production departments pushing defective
products downstream to maximize labor efficiency
? This causes competition between segments and individuals rather than
cooperation and teamwork. Prevents goal congruence. Creates slack and excess, e.g.,
inventory buffers, excess capacity, people, and vendors.
? Tends to ignore many, if not most interdependencies within the system. Decisions
are based on self interest rather than the best interest of the system.

? Promotes ranking people which ignores statistical variation. According to Deming,


this destroys moral, intrinsic motivation and teamwork.
It may seem that the company is having problems at the moment with how these
three profit centers coordinate with each other. However, this is their first time to do
this. Given enough time for the learning curve, it may be assumed that the company
will become more profitable with each center geared towards generating profits.
Adopting a decentralized form of management may work well if each department will
still think of the welfare of the other departments in the company. Decentralization
should not create division but greater cooperation and teamwork.
Another option that the company can take is by merging the use-car department
and the service department, making the latter both a cost center and a profit center.
Providing service internally without any charge but will still accept job orders from the
outside to cater the maintenance service both for the new car customers and used car
buyers. Besides, based on the statement of income of the service department has not
been making any profit and even incurred loss of about $8,000.